Information and Consulting

Friday, February 25, 2011

Housing is one of the most critical parts of the overall economy as a whole (well that’s stating the bloody obvious). When things were bubbling along in great fashion back in the g.o.d. (good old days) at the height of the housing frenzy in 2005, the United States started 1,715,800 homes, see NAHD stats . Between 2002 and 2007, we started over 11.2 million housing units, 1.4 million per year. In 2009 and 2010 we averaged 458,000 residential units, almost one million less than the running average.

These millions of homes meant millions of refrigerators, air conditioners, garage door openers, and toasters. Millions of yards of carpeting, millions of gallons of paint, and miles of wiring were built into these homes; roads and services were needed for support. Sure, some of the goods came from China but a lot came from the United States and our partners to the north and south. In the United States it is very easy to see where the underlying malaise and depression comes from when there is this hit to the economy. But then again if we acted like this in our own lives by buying and building more than we need, we would have, and now, do have the same problem.

This is going to be an economic disaster for a long time. I have noted in past blogs about the housing overhang (excess existing new housing (unsold) that exceeds demand) and its impact on the market. Outside of some very regional markets (in fact these are almost at neighborhood levels), housing demand for new housing is dead. If I see one more news article stating: Housing Continues to Drag on the Economy, I’ll scream (OR START TYPING IN ALL CAPS). Yes, so? There is not one economist or human (they are separate species), that can predict when this will turn. Depending on your level of paranoia or conspiratorial beliefs, we are either being manipulated by the oil companies, unions, school teachers, March Madness, or 3 retired bankers from Goldman-Sachs that meet once a week at a small coffee shop in the east end of Long Island before playing Shinnecock (the last one may be true).

Do you really want to become depressed (or is the politically correct term now “recessed”), read Gary Shilling in Forbes this week. Schilling sees a continued decline in house prices of 20% (he also believes that the end of the world is only a few weeks away); this is on top of the total collapse of the housing market we have seen to date. Some articles guess that 11% of the homes in the US are empty, these are unsold, foreclosed, or abandoned, this translates into 18.4 million units.

An iPad is a better investment than a house.

Ludwig von Mises, my economic guru (and yes he was a different species), said quite simply “the market is supreme.” That pesky little bit of human action that we rely on for everything: buy-sell, barter, trade, homes, cars, iPads, are all driven by an agreement between a seller and a buyer. Supply and demand, want, fear, everything comes back to the simple: need and offer. This is the current state of housing, not just here but across Western Europe as well. Governments pumped excess capital into the market (stimulus), subverting the buy-sell relationship (the buyer had “more” cash thus the seller raises his price). At some point it would and did collapse. It will take us years to rebalance this buy-sell arrangement. The government can’t help make it better, but they can make it worse.

The costs of things are rising, commodities prices are rising, the market (the universal “us”) is driving the world to reprice the buy-sell arrangement. We all want sweetness and light in our lives, sunny days and an iPad (this is true but I’m waiting for the next generation – but then again aren’t we all).

The one bright spot, believe it or not, is housing. Everything else will go up in price but the overhang will keep home prices low. Interest rates are lowering again, and if home prices do drop as predicted, the McMansion may become as cheap as a Double-Whopper with fries and a shake.

Thursday, February 17, 2011

This week’s blog, fortunately and unfortunately, is short. I am off to the San Francisco Writer’s Conference today and time is too critical to do justice to the subject line I started last week, Detroit. The SF Writer’s Conference is an interesting amalgam of all types of writers, publishers, and editors. And, since it’s in San Francisco, an interesting white noise seems to cover the background of the conference – touchy-feely comes to mind. But there are a few hardcore mystery and thriller writers to keep it interesting.

Take a look at my other blog Writing4Death, (www.writing4death.blogspot.com), to see what the other side of my life is like.

Just passing on a comment about Detroit that I may expand in the future. It is easy to stand two thousand miles away and lob suggestions and ideas at a very difficult problem: How to aid in slowing the death of a regal city? I will not live long enough to see Detroit return to glory. It took fifty years to sicken and recovery will not be any faster. But it can happen. A TV show that I have become quite fond of this year is Detroit 187, a cop show filmed in Detroit using all aspects of this city as a backdrop, and at times, integral parts of the stories. From the mean and hard streets, to the abandoned factories, to the downtown casinos and waterfront – the city is laid bare for all to see. And the stories are good as well – I recommend it before they pull the plug; there is a underlying story-line that defends the honor of the city. Besides I am a big fan of Michael Imperioli, especially since his stint on the brief but interesting Life on Mars, and there is this rumor going around that he was on another small hit show about singing gangsters, The Sopranos.

Friday, February 11, 2011

After my gushing last week about Vancouver, Canada, I was brought back to reality by an interesting article by Krissah Thompson of the Washington Post, titled: With Detroit in Dire Straits, Mayor Invites Big Thinking. The article was the latest update on the disaster that is this once fine city and the parallels and similar characteristics faced by cities across the country but concentrated in the “Rust Belt” as it seems to be now called, Cleveland shares many of the same problems as do many smaller cities: evaporating populations, collapsing infrastructures, failed family structures, failed businesses and failed governments. The only success seems to be achieved by crime and the hyperbole shown by the press.

Go to Google Earth and just cruise around the immediate neighborhoods around the center core of Detroit. The view is scary, there are more empty lots than houses. What is remarkable is that as you move outward, the neighborhoods grow more populated and there are cars in the retail lots. How many of these houses are empty I don’t know, how many are foreclosed – not a clue? But what is known is the town is facing failure on a scale that boggles the mind.

Detroit Residential, 2.5 miles from downtown

I went to Michigan State University in the 1960s, my family’s roots are north of Detroit about 200 miles, the state survived and thrived on what happened in Detroit, period. Michigan has some of the most prestigious universities in the country, a well-educated citizenry and one of the worst internal political systems. Every effort by both the state and the major cities has been one that drives businesses, jobs, and its people out of the cities and the state as a whole. The residents see no future, so why stay?

A few facts: Detroit is the eleventh most populous city with 910,920 people (and probably dropping as I write this), in the 1950s it was the fifth-largest. With Windsor, Canada across the Detroit River the region has over 5.5 million people. The Midwest’s water born trade passes by the city’s gates from Lake Huron to Lake Erie. It is more centrally located than Chicago or Cleveland to the region. No large American city has better access to Canada.

It’s easy to point at the reasons for the city’s collapse, but it is probably hinged on the decline of manufacturing in the United States over the last thirty plus years. Not just automobiles but the attendant industries of machine tools, assembly, industrial design, changes in distribution, and the movement out of the region to assemble cars in non-union and more affordable locations. Now, nowhere else is more affordable than Detroit.

Detroit and Cleveland and Toledo and Gary and hundreds of other smaller cities of less than 100,000 people are the ‘Dust Bowl’ of our times. How can this change? Can a wand be waved? Can a Band-Aid be placed?

All the major and minor players in urban development and design have their fingers and egos in the porridge. The Urban Land Institute is offering its help (how did that New Orleans thing work out ULI?), the universities are having their clueless students do plans and studies, Washington is flying in and out daily with handouts and programs. Foundations are lining up at the ticket counters offering help: Kresge, Ford, Rockefeller, and Kellogg. Everyone has their hand out waiting for a taste.

The time is past to save the city for a Phoenix rebirth, if it happens the city will not look like its past. The city must change to encourage people to return and built a new city on the bones of the old.

I am a planner and urban historian, so it would be well to look at how most American cities grew. They started as places where things came together and had easy access to the region: junctions of major rivers, safe harbors, inlets to long rivers, and lately freeway interchanges, airports and rail lines. From these nascent villages great cities grew, and usually not by incremental growth like an onion but by ‘leapfrog efforts’ that would later be ‘filled-in.’ Land values and affordability drove most decisions, land speculation was the norm (the good and bad kinds), cities grew not by the hand of some type of governmental management (this is a recent and not so flexible management system) but through some efforts that were, at times, not always nice, neat, and egalitarian.

Some suggestions, take them for what they are worth:
1. Look at immediate Detroit region and redefine core neighborhoods, village centers and adjacent residential area, do what can be done to support these entrepreneurial islands through tax rates, fees, and assistance.
2. Separate these areas with greenways, parks, agriculture. This is a step back to the incremental growth patterns of a hundred and fifty years ago.
3. Reduce costs by concentrating future growth in these cores.
4. Do not give away things. It might get the problem off one ledger but if there is not the American “earned it” reward, the property will never become a neighborhood catalyst. Sure there are ways to help, think of the 1890 land rushes, but there were also very important requirement to insure long term ownership.
5. Encourage immigration into the community. Go to countries that have people desperate to leave and offer them ‘forty acres and a mule;’ we all got here on the same boat but at different times. Would you deny your great-grandfather his right to immigrate?
6. Do not rely on technology to save your butt. It is costly and has strings, especially if from Washington. High speed rail and urban transit systems are costly and intrusive. Besides how do they save a city, I tend to think it cut it apart.
7. Make is essentially free for a business to operate in a community. Reduce or eliminate fees, licenses, taxes and other governmental niceties. These are there to support the city not the community. Give the entrepreneur a five year moratorium; they have enough difficulties without the heavy hand of government and its management teams.

Friday, February 4, 2011

I spent a delightful three days in Vancouver late last summer after venturing up into the wilds of Alaska (if you can call cruising “WILD”). Without a doubt, it is one on North America’s greatest cities for a number of reasons: scenery, setting, architecture, recent efforts at preservation and the ability to densify the population without seeming to tax the character and intimacy of the place.

The region holds over 2.1 million people and the city proper, almost 600,000. The sense, to the visitor, is that you are on an island because wherever you look there is water, but in reality it is loosely attached to the mainland – more of a peninsula. The city is a little over 125 years old and still seems to maintain the sense of a northwest community founded on lumbering and trade. It is now an international business center, tourist destination, and in third place for making films in North America. It is a manageable and livable city that the visitor and resident can get their arms around. It is a city of neighborhoods and villages.

What makes for Vancouver’s livability is its density and sense of itself. It is the fourth most densely populated city in North America at 13,829 people per square mile. Only New York, San Francisco and Mexico City are denser. This is the result of a fifty year urban planning effort characterized by high-rise apartments and condominiums and a strong mixture of mixed-use and urban reuse.

North Side of Vancouver

These verticals are visually represented by a mixture of glass and steel that present a lighter and reflective texture to the skyline. Blue-green seems to dominate the glass, there is a brightness to the structures that seems to diminish the height. There is not the dark glass and heavy blacks representative of the American architecture of the 1960s and 70s (San Diego is beginning to develop this Vancouver visual scene as well). This density and verticality, opens the street to more parks, trees, landscaped bits, and vistas. One can easily imagine the views from the residential units.

False Creek

I am also struck by the blending of cultures – it is here in Vancouver that east meets west better than any large or small American city. Vancouver is a blend of the orient, taken from Hong Kong and Japan, mixed with Canadian and American idioms, and then brushed liberally with European styles (especially Nordic and Scandinavian touches). It is a city that sparkles at night, and even on somber overcast days, creates anticipation.

Vancouver at Night

American cities will face incredible pressure while they try to cope with the expected growth of another 100 million citizens and immigrants. We dealt with the post-WWII growth by pushing out into the suburbs, leaving our urban areas to cope and sadly fester for thirty years until the urban rebirths that began in the 1980s (dates and regions can be argued, but it was essentially during the late Twentieth Century). This return to the city by young, old and, most especially, immigrants began to change the American city’s culture and architecture. But it still remains, except for city cores like Chicago, Miami, and parts of San Francisco, low rise and under five stories. Manhattan is different, but the surrounding boroughs are not. Within the model of Vancouver, the streets are less impacted by shadows (the narrower shadow of a high rise is less of an impact, in fact it’s continually changing), than the block by block fifty foot high mega-structures and their impact on the sidewalks, New York does come to mind here.

Granville Island Market

What makes a great city is not just the food, the historic aspects, the setting, or the architecture – it is the people and the culture they create. Cities with a sense of themselves and higher density give back better restaurants, shops and stores, and evolve a hybrid cultural through its museums, parks, and fairs. Vancouver has salvaged the old nasty bits (like Granville Island and Gastown) and turned them into important community neighborhoods. It is debating its future, even taking the next step of “ecodensity” to find ways of better integrating density, design, and land use in sustainable and affordable ways while trying to maintain livability.

Our low rise American cities and urban areas will face these issues in the coming twenty years. Every city I work in seems to fight the vertical, we are conditioned, for some reason, that height is a blight on the community, thirty-five foot height limits dominate the codes, to push to fifty-five is akin to the worst a developer can do. So we push horizontally, gobble up land, lose our views, and reduce or streets to narrow corridors that serve the community – not contribute to its rich fabric. Parks become postage stamps, street trees are lost, and sidewalks fight with cars and traffic.

I was greatly impressed with Vancouver. Sure there are problems and issues; it is costly to live there. It is, according to some reports, the most expensive city to live in in the world when income versus housing costs are compared. In 2006 it was 13th in the world as the least affordable, and according to Joel Kotkin it may be the least affordable English speaking city, outranking even London. How does this bode for the community’s future when you continually push out many who want to be a part of the city but don’t have the Loonies, Yen, or Euros. It is a very difficult problem that the city has to come to terms with. The market demands the prices, yet, like the suburbs, it forces others out (especially service providers) and even keeps them from entering.

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About Me

Greg was born in 1949 in Traverse City, Michigan. Raised near Chicago he moved to California in 1971. The son of a journalist and entrepreneur, Greg has never forgotten his roots; his non-fiction work has focused on the Midwest region. Californian by choice, Mr. Randall makes his home in Walnut Creek, California with his wife, constant companion, and business partner. His preferred fiction genre is mystery/thrillers and historically based novels.